“The best investment on earth is earth.” ~ Louis Glickman
If you’re a real estate investor, either experienced or just starting out, you are likely to agree with Mr. Glickman. As a real estate investor, being able to leverage credit is one of the best superpowers one could ask for. The only problem is being able to jump through every hoop and step over all the red tape to qualify for a mortgage , which can often limit us to the number of homes we can buy.
Have you ever thought about using your retirement funds to invest in real estate?
The IRS allows investing in real estate through qualified retirement plans. Custodians and retirement plan providers, however, are the one who may restrict investment options to what they offer. The self-directed Solo 401k is one of the most popular retirement plans among full-time real estate investors, allowing them to add real estate to their retirement portfolio.
Solo 401k is a qualified retirement plan for owner-only businesses, self-employed professionals, and individuals with part-time self-employment activity. It has gained popularity over the last several years, primarily because of the investment freedom and higher contribution limits.
Step 1: Establish a Solo 401k retirement account through a Solo 401(k) provider.
Step 2: Rollover funds from existing IRA, 401k, or other qualified retirement plans into your Solo 401k account. The only rollover exemption is through a Roth IRA, so you won’t be able to rollover those funds.
Step 3: Choose a property that you would like to purchase through your retirement plan, and perform the due diligence.
Step 4: Once you’re ready for the purchase, release funds from your retirement account to purchase the property. If you do not have sufficient funds to complete the transaction, use non-recourse financing to fund the deal.
Step 5: Your Solo 401(k) plan will hold the title of the property, and you will sign on its behalf, as the manager/trustee of the plan.
Step 6: Any income yields from the property will go directly into the Solo 401(k) plan. Similarly, your Solo 401(k) plan would bear any maintenance or repair costs.
Voila, you have successfully added real estate in your retirement portfolio!
Solo 401k, when coupled with all the available investment options, is a powerful tool for wealth creation. However, not every plan provider offers the features you would like to have in your retirement plan.
Considering the key factors and benefits of Solo 401k retirement plans, there’s no doubt that it can be one of the wisest financial decisions you’ve ever made.
Guest Blogger: Dmitriy Fomichenko,
President of Sense Financial Services LLC